Pennsylvania sees biggest budget shortfall since recession

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By MARC LEVY

(AP) Pennsylvania state government is heading into the 2017 budget season with its biggest revenue shortfall since the recession, leaving budgetmakers to address an unexpectedly large budget gap with just nine weeks left in the fiscal year.

Democratic Gov. Tom Wolf and the Republican-controlled House and Senate majorities are putting a wide variety of puzzle pieces on the table that could go into a final budget bill.

It is not clear what will make it into the final product, or whether Wolf and lawmakers can avoid an epic budget stalemate that lasted through most of the 2015-16 fiscal year.

The latest The state Department of Revenue is reporting that it has a shortfall in excess of $1 billion, now 10 months into the fiscal year. That's more than 4 percent, a bigger margin at this point than in any fiscal year since 2010.

In January, the Legislature's nonpartisan Independent Fiscal Office projected a shortfall of nearly $3 billion for the two fiscal years ending June 30, 2018, including the cost to maintain the state's current programs. April's results would push that shortfall to more than $3 billion.

Similar budget struggles are happening across the nation.

The National Association of State Budget Officers said 29 states have lowered their current fiscal year revenue estimates, the most since the recession.

The state Department of Revenue attributes April's poor tax collections, in part, to the U.S. economy recording its slowest quarter in three years.

Meanwhile, the Independent Fiscal Office said Tuesday it suspects that business profits and capital gains income that might have been reported in the 2016 tax year are being reported instead in 2017 in anticipation of a federal tax cut. The office also said income growth is not translating into spending growth, thus depressing sales tax collections.

How it got here Pennsylvania has consistently run a deficit since the recession, a combination primarily of sluggish growth in tax collections, rising health care costs and catching up on a long overdue tab for public pension obligations.

Last summer, the state enacted a $650 million tax package that hinged on a $1 per-package cigarette tax increase. But Pennsylvania also has cut taxes, eliminating the capital stock and franchise tax on businesses that delivered $837 million as recently as in 2012.

The state otherwise has papered over the deficit by cutting spending, transferring money from off-budget accounts or postponing payments. The repeated use of one-time stopgaps to plug the deficit has damaged Pennsylvania's credit rating.

Impact The state's bad budget news is more bad news for counties and school districts, which depend on billions of dollars in state aid. Both have complained that cuts at the state level in recent years have forced them to raise property taxes.

Solutions Wolf's office remained adamant Tuesday that a tax increase this year will be necessary to balance the budget, something that top Republican lawmakers have thus far resisted.

Proposals from the various parties include a production tax on Marcellus Shale natural gas drilling, the privatization of Pennsylvania's wine and liquor-store system, a massive expansion of casino-style gambling and cuts to administrative agency budgets, prisons, school busing aid, child care subsidies and health care for the poor.